Markets can be boring for long periods of time. So whatever you buy just stays there or keeps going down. For traders and investors who are used to making quick money during bull markets, this can be tough. Your portfolio can take a hit and show a fall from 15% to 40%.
The stock I was running to buy at 1000 now quotes at 700 and I think of selling it off and book my loss worrying that it will fall more.
What must I do in such a situation? Its time to come back to the drawing board. I’m listing below a few points I feel need to be kept in mind.
1. Stop looking at the profit and loss daily. Start accumulating the best companies. Companies with the best managements. Companies you have always wanted to own but could not afford to.
2. Buy only the best large caps and midcaps.
When markets recover, the best large caps recover first followed by the other large caps, midcaps and lastly the small caps and that can be frustrating. The Index keeps moving up but your stocks don’t !
3. Do not average stocks only because they have fallen a lot. If you have bought a small cap stock which is down 40%, don’t buy it only because it has fallen so much.
4. Buy some high dividend yield stocks. A stock previously giving a dividend yield of 6-7% will now be giving a yield of 10-11%. This will ensure a steady flow of income during bear markets even if they are long.
Historically stock markets have always given the best returns in the long term.And one gets the best returns if he accumulates during bearish times.
Reliance Industries traded between 300 and 550 for 7 years between 2009 and 2017. From 2017 to 2022, Reliance has moved to a high of 2800 which excludes a bonus announced twice in 2009 and 2017.
Infosys, TCS, Nestle, Britannia, Asian Paints, Pidilite are some other examples of stupendous returns.
Once markets starts moving up, all you have to do is sit back and enjoy watching these stocks moving up and making you rich.